Innovation and Entrepreneurship - Literature review Example

Literature Review: Innovation and Entrepreneurship Name Institution Literature Review: Innovation and Entrepreneurship Abstract This theoretical paper aims at analyzing entrepreneurship concept and follows the techniques used by scholars to conduct research. The literature review will analyze and compare the practice of four entrepreneurship theories. As the world changes rapidly, information and knowledge is becoming an interesting are for the entrepreneurs. The major in the current business environment and academic world is the opportunity notion, which most entrepreneurs have not been able to embrace. Consequently, the paper aims to focus on entrepreneurial evolution as it points out several findings that relate to practical analysis of entrepreneurs. Schumpeter’s theory of entrepreneurship is critical as it influences different aspects of entrepreneurship: theoretical and practical. Entrepreneurship theory according to von Hayek was significant as it signalizes the importance of entrepreneurial knowledge. The paper reviewed all the four theories while pointing out both the strengths and drawbacks. Business environment is the major driver of change. Keywords: entrepreneurship; innovation; practical knowledge; network theory Introduction: The Entrepreneurship Concept Entrepreneurship concept has been used for a long time within academic and business environments (Delgado, 2004). Even though the entrepreneurship practice existed since the occurrence of first trades between people, French banker, Richard Cantillon, was the first person who attempted to define such concept in the 18th century. According to Cantillon, what defines an entrepreneur is the ability and willingness purchase goods at any price and sell at their defined prices. In the beginning of the 19th century, Jean Baptiste defined an entrepreneur as any person with the ability of transferring the economic resources from a given sector experiencing lower productivity rates to the one presenting better income and productivity rate (Audretsch, Keilbach, & Lehmann, 2006). Since 19th century and the growing pace of the global economic development, there have been several approaches used in analyzing and describing entrepreneurship. Due to its significance and wide array of implications in different arrays, the topic presented the subject of several studies and articles (Bessant & Tidd, 2007). In the current research, the major findings can be described in three different ways. Firstly, the impacts of entrepreneurial processes have been viewed as drivers of economic development. Secondly, from the social and psychological context, entrepreneurship concept often present research subject (Išoraitė, 2014). Finally, the concept of entrepreneurship could be viewed as a process of management since it focuses on continuous innovation and alteration of organizational methods remaining relevant in the competitive market. The literature review builds its hypothesis on the idea that in the modern business environment, the major factor driving entrepreneurship concept is the opportunity notion that it presents. Innovation and Entrepreneurship according To Schumpeter’s Theory For better understanding of entrepreneurial evolution, it is important to note the important events that shaped the concept with time. After the initial definition by the French authors in the 18th century, entrepreneurship research entered the shadow because large number of economists including Marx, Ricardo, and Walras failed to consider an entrepreneur as being relevant to their theories and model (Amatori, Bugamelli, & Colli, 2011). As a result, their findings left out entrepreneurship concept. The situation almost changed entirely with Joseph Schumpeter’s studies on entrepreneurship concept. The Australian economist presented the major figures of entrepreneurship research field. Through the studies conducted, Schumpeter viewed entrepreneurs are change agents; it is easy to achieve economic growth (Piperopoulos, 2011). Furthermore, according to Schumpeter, there are differences between innovation and invention that shape entrepreneurial concept. The main defining factor for the entrepreneurs is the innovation process (Bosch, Tait & Venter, 2007; Swedberg, 2000). Based on the earlier findings, Schumpeter argued that entrepreneurship theory ought to be built on the actual activities of an entrepreneur (Sanchez & Heene, 2005). Research on practical entrepreneurship is the major feature on Schumpeter’s theory as it presented an idea of analyzing the concept of entrepreneurship (Ateljevic & Li, 2009). For example, the theory insisted on the significance economic theory and history integration to foster better understanding of the concept. Besides the initial suggestions, Schumpeter presented two typologies: entrepreneurial behaviors and drivers, which are of great significance, while researching on entrepreneurship studies (Heon-Deok, 2012). Schumpeter cited the various forms of entrepreneurial behavior: introduction of the new idea, production method, establishment of new market of supplying raw materials, and creating new institution (Bornstein & Davis, 2010). The three major drivers include the will for independence and power, the goal to triumph, and the happiness of creation. According to Schumpeter, money does not decisively motivate an entrepreneur. Besides, from theoretical sense, an entrepreneur is not an economic man. Von Mises’ insight on the subject differs from that of Schumpeter (Brem, 2011). According to Ludwig von Mises, entrepreneurship is an anticipation of unsure events and believes that money is the only driver the entrepreneurial actions. Von Mises aims to underline the errors within entrepreneurial roles. Knowledge and Entrepreneurship according to Friedriech von Hayek’s Theory Friedriech von Hayek’s theory focused on the application of the practical knowledge with entrepreneurship citing that the major factor representing the important premise for entrepreneurship existence is the deficit in knowledge. Deficit of knowledge is not the knowledge lacking the initial conditions, which most entrepreneurs often add within the entrepreneurial process (Dahlstrand & Stevenson, 2010). The author refers to the new knowledge type developed through the existing process. Von Hayek views entrepreneurship as a discovery process. In the article, “The Use of Knowledge in Society,” the theorist outlined important critiques associated with the economic theory with reference to practical knowledge (Fealing, 2011). The main goal of the theory is to signal the importance of practical knowledge as it represents significant step towards establishment of more practical entrepreneurship concept (Nicholls, 2006). According to Monica Lindh de Montoya, there are actions undertaken by the entrepreneurs that define their capacity to read the cultural codes (Ernst & Young. 2010). Achievement of success depends on the entrepreneurial awareness of practical information defining people’s culture. Opportunity and Entrepreneurship according to Peter Drucker’s Theory Peter Drucker’s puts more emphasis on the idea of opportunity. Hence, the theory embraces the practical aspect of entrepreneurship and a possibility of understanding the processes involved in entrepreneurship. In Drucker’s theory, entrepreneur often exploit opportunities without necessarily causing the change since the entrepreneurs often search for change, create the responses, and exploit the opportunities (Research in Entrepreneurship and Small Business Conference, Raposo, & European Council for Small Business and Entrepreneurship, 2011). There are several concepts of opportunities encountered in various definitions of entrepreneurship. According to Kirznaer, entrepreneurship means lateness towards the profit opportunities. However, Drucker makes a major distinction that setting an opportunity is the central focus of entrepreneurship. Moreover, for Drucker, the entrepreneurs are change agents interested in the opportunities and not the obstacles. To succeed, the market needs to orient and orient the entrepreneurs (Lynch & Walls, 2009; Zhang & Stough, 2013). Both von Hayek and Montoya have similar view regarding the importance of practical. Ducker defines systematic innovation as a concept involving searching for changes in an organized way and with a purpose and systematically analyzing the change opportunities (Beaver & Prince, 2002; Wagner, 2010). The theory also present four important areas of entrepreneurship process management requiring clear policies to be successful. The entrepreneurial enterprises often focus on the policies and practices (Petrou, Liargovas, & Daskalopoulou, 2010). The organization needs to prepare adequately in accepting innovations and focus on the opportunities associated with changes but not obstacles, appraising systematically the organization as an innovator, practices relevant to issues of management, and circumstances that should never be taken into considerations under any circumstance (Mitra, 2012). The entrepreneurship theory is centered on the opportunity concept. According to Howard Stevenson, the entrepreneurs often pursue opportunities without any regards for resources currently controlled which reflects the centre of entrepreneurial concept. Thus, the present resources are not obstacles to pursuing entrepreneurial opportunities. Network and Entrepreneurship according to Ronald Burt’s Theory Ronald Burt also offered an approach towards entrepreneurship practice and analysis through the network theory. The networks often represent all the relationships and connections possessed by people irrespective of their nature and features (Keister, 2005). According to Burt, the network concept is the focus to sociological capital suggesting two possible interpretations: network could be critical as it leads to important opportunities and resources and it is considered considering its resource nature, capacity of offering better accessibility, opportunities, and timing. Burt introduces entrepreneurial concept using structural theory citing that the determinant feature for the entrepreneurs is the capacity of mediating between different network members. Entrepreneurial opportunity is a structural hole and occurs between two non-redundant contacts, the contact existing when there are no linkages now. Consequently, the third person from the network “tertius gaudens” can take the chance (Wagner, 2012). Construction of the network non-redundant might assist to improve the efficiency of the network and implicitly the social capital (Rüdiger, Peris-Ortiz, & Blanco-González, 2014). As a result, there would be reduction in the costs, optimal structure, and increment in the number of structural holes. Information and accessibility are the important factors of the structural hole. Thus, depending on the structural network quality, entrepreneurs are able to raise or reduce their return rates. With reference to entrepreneurial motivation and opportunity, Burt cites that the type of network constructed by an entrepreneur represent a critical driver for associated behavior (Carree & Thurik, 2006). According to Burt, networks presenting several entrepreneurial opportunities motivate entrepreneurs. Findings: Comparing the Four Theories Schumpeter and von Hayek presented their theories in the 1940s while in 1980s Burt and Ducker presented theirs. Consequently, the first two theories majorly focused on “why” and “who” but the last two focused on “how.” Although in the 1980s, most theories disregarded the practical aspect of entrepreneurial. From Schumpeter theory, it is clear on the importance of studying the actual entrepreneurial activity to guarantee future understanding of future entrepreneurship concept, comprehend on the innovation and invention differences, and putting emphasis that money is not the major driver of entrepreneurship concept. Moreover, von Hayek cited the critical contribution of practical knowledge for entrepreneurial success and outlined the relationship between entrepreneurship and creation of knowledge. On the contrary, the theories presented by Drucker and Burt aimed to shift entrepreneurial concept from towards the “how” question and focused on opportunity concept. Drucker focused on the typology associated with opportunity sources, the guidelines for practicing entrepreneurship management, and states that entrepreneurs do not have to be change agents, Burt holds a different opinion. Burt tries to explain entrepreneurial concept through the network theory people or the enterprises can develop social capital. Moreover, the theory also explains methods of discovering opportunities and information for prosperity of an entrepreneurship activity. Despite differences, authors recognized throughout their theoretical works the importance entrepreneurship in ensuring better performance of economic health and practical tools and aspects of entrepreneurship. Additionally, through considering Schumpeter’s argument that entrepreneurial status only occur during the innovating process and bringing the something into life, it is clear that no one is an entrepreneur forever. References Amatori, F., Bugamelli, M., & Colli, A. (2011). Italian firms in history: Size, technology and entrepreunership. Roma: Banca d'Italia. Ateljevic, J., & Li, L. (2009). Tourism Entrepreneurship – Concepts and Issues. Tourism and Entrepreneurship, 2(5), 9-32. Audretsch, D. B., Keilbach, M. C., & Lehmann, E. (2006). Entrepreneurship and economic growth. Oxford: Oxford University Press. Beaver, G., & Prince, C. (2002). Innovation, entrepreneurship and competitive advantage in the entrepreneurial venture. Jrnl of Small Bus Ente Dev, 9(1), 28-37. 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